FinTech investment hits £12.2bn as Bank of England plots life without checkouts

The Bank of England looks set to throw its considerable weight behind the UK’s thriving FinTech sector as fresh investment hits a record high, writesReed Smith's Howard Womersley Smith

For those watching the UK’s world-leading FinTech space, Mark Carney’s speech at Mansion House back in June was a real statement of intent with the Bank of England’s Governor underlining the growing importance for FinTech innovation across the UK’s Financial Services.

Carney’s speech – amidst looming uncertainty over the UK’s decision to leave the EU - showed just how the BoE plans to back FinTech as a way forward, particularly in payment systems and payment services beyond Brexit.

Entitled ‘New Economy, New Finance, New Bank’, Carney described how the Bank of England will turbo-charge the payments sector by rebuilding its RTGS (Real Time Gross Settlement) service ‘so that new private payment systems, including those using distributed ledgers, can simply plug into our system’, which includes those running off Blockchain technology.

The impact of these plans on a consumer level will mean that buying stuff will become easier and faster, as the ‘checkout will be eliminated’, or in Carney’s language - go, Amazon-go!

For innovators, this is a strong message that the UK - not just London - is the place to start your FinTech business, as it is well supported by both the government and now also the central bank.

And the figures speak for themselves, as the speech comes at a time of reports of investors continuing to be bullish on UK FinTech, with over £12.2 billion being invested in the first half of 2018, according to KPMG.

Despite Brexit, four of Europe’s top ten FinTech deals by investment size took place in the UK, with the largest being the £9.8bn acquisition of the UK’s Worldpay by the US payment processing giant, Vantiv.

This does slightly distort any claim that the UK is the FinTech investment capital in volume of deals as opposed to value.

Photo credit @WikiCommons

Having said that, there have been some chunky funding rounds during KPMG’s reported period by the likes of Revolut with £190.3m, eToro with £76m, Flender with £45m and MoneyFarm with £54m.

The support by the Bank of England isn’t just about being seen to be aligned with the UK government, however. It is also about survival.

The Open application programming interfaces (APIs) required to be implemented by the UK’s Open Banking initiative and the EU’s Second Payment Services Directive (PSD 2) will give payment service providers the ability to draw funds directly out of a consumer’s bank account rather than waiting to be paid via a merchant acquirer or through the banking system.

This creates an opportunity for existing payment service providers and new entrants alike to cut out settlement agents. The Bank of England, as one of those middlemen, must keep up with these changing times of disintermediation and distributed networks otherwise it will become obsolete.

Open Banking will benefit both the banking and the FinTech sector alike, even if the incumbents don’t see it right now.

For banking, it is a chance to modernise and respond to what millennials are demanding from their Financial Services – in short, something more accessible, fun and less clunky!

Some banks are responding to this through fragmentation, such as with Yolt and Artha (First Direct). Others are seeing it as a way to carry out a spring clean from within, such as with Lloyds Banking Group’s digital transformation project.

For FinTech, it widens an already nebulous definition by bringing peripheral service providers into its community, such as fraud detection agents, identity authenticators and super data analysts.

From an investor’s perspective, this all offers a whole new playing field in which to dominate.

This is not an investment space to watch, it is one to be knee-deep into while it is still at an early stage of its lifecycle.

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